Washington Liquor Control Board Announces Marijuana Licensing Educational Seminars

Over the next few weeks, the Washington State Liquor Control Board (WSLCB) Marijuana Licensing staff will be conducting a series of educational seminars across Washington State. During the seminars, WSLCB staff will be advising potential licensees of the license application process under Initiative 502 and will be available to answer any additional questions.

Those interested in attending can register online. The following is a list of all upcoming licensing seminars:

October 17  

9:30am – 12:00pm
Hal Holmes Community Center
209 North Ruby Street
Ellensburg, WA 98926
Register at: https://wslcbellensburg.eventbrite.com

October 21

Session 1   9:30am – 12:00pm
Session 2   1:30pm – 4:00pm
Washington State Convention Center
800 Convention Place
Seattle, WA 98101
Register at: https://wslcbseattle.eventbrite.com

October 23

Session 1   9:30am – 12:00pm
Session 2   1:30pm – 4:00pm
Spokane Convention Center
334 West Spokane Falls Boulevard
Spokane, WA 99201
Register at: https://wslcbspokane.eventbrite.com

October 24

Session 1   9:30am – 12:00pm
Session 2   1:30pm – 4:00pm
Shilo Inn Suites
50 Comstock Street
Richland WA
Register at: https://wslcbrichland.eventbrite.com

October 29

9:30am – 12:00pm
Cotton Tree Convention Center
2300 Market St
Mt Vernon, WA 98273
Register at: https://wslcbmountvernon.eventbrite.com

October 30

Session 1   9:30am – 12:00pm
Session 2   1:30pm – 4:00pm
Lacey Community Center
6729 Pacific Avenue Southeast
Lacey, WA 98503
Register at: https://wslcblacey.eventbrite.com

November 1

9:30am – 12:00pm
Red Lion Hotel at the Quay
100 Columbia St
Vancouver, WA 98660
Register at: https://wslcbvancouver.eventbrite.com

Senate Judiciary Committee Holds Federal Marijuana Policy Hearing

With several states now moving forward with legalized medical or recreational marijuana regulatory schemes, how to obtain business financing remains a hurdle legal marijuana growers and distributers have yet to solve. As noted in a recent New York Times article, “financial institutions, security providers and landlords that serve marijuana businesses can be prosecuted for racketeering, money laundering and trafficking” under federal law. Marijuana continues to be a prohibited substance under federal drug laws, and as a result, federally insured financial institutions are highly unlikely to lend to marijuana businesses, even if those businesses are legitimate.

To determine how differences between state and federal marijuana laws can be resolved, the U.S. Senate Judiciary Committee held an unprecedented hearing this past Tuesday in Washington, D.C. The hearing came hot on the heels of the release of a DOJ memo that announced that federal authorities will not challenge state laws legalizing medicinal or recreational marijuana use, and set out the agency’s anticipated enforcement strategy.

At the Senate hearing, King County Sheriff John Urquhart urged that a solution be found for banks and other financial institutions that wish to do business with a state-sanctioned marijuana industry. He stated, “I am simply asking the federal government to allow banks to work with legitimate marijuana businesses that are licensed under state law.”

It is hard to say how this conflict will be resolved. Should marijuana businesses be shut out of commercial finance options, they will be forced to operate on a cash basis. Such business operations have historically been associated with tax evasion and other criminal activity. As Deputy Attorney General James Cole pointed out in the hearing, “there are no perfect solutions here. We’re at the point where we’re trying to find the best of the imperfect solutions before us.”

What the Federal Government's New Marijuana Guidance Means for Washington Businesses

On Thursday, the U.S. Department of Justice finally addressed its enforcement strategy as it relates to the recent Washington and Colorado initiatives legalizing marijuana in those jurisdictions.  In a memo issued to U.S. Attorneys (PDF), Deputy Attorney General James M. Cole announced that the United States would not sue the states to overturn the voter-endorsed initiatives.

The DOJ instead expects to focus on preventing marijuana sales to minors, illegal cartel and gang activity, interstate trafficking of marijuana, and violence and accidents involving the drug.  See generally the New York Times report for complete background.

The announcement was welcomed by the Washington State Liquor Control Board, which endorsed Governor Jay Inslee’s view that the U.S. DOJ “helped lay a path forward for Washington and Colorado to implement its systems of producing, processing and retailing recreational marijuana.”  The Board explained that, “[our] primary rule-making focus has been to create a tightly regulated market with emphasis on public safety and restricting youth access. In his letter, AG Holder shared the same concerns. . . . The Board is confident that Washington’s recreational marijuana system will meet most, if not all, of the federal government’s stated concerns.”

What does this mean for Washington businesses?  They may go forward, at least on a small scale, without the threat that the federal government will immediately sue to suspend I-502 on supremacy cause grounds.  They should be careful, however, not to engage in activities that would trigger federal inquiry -- that is, those activities outlined by the DOJ on Thursday.  There is no question that the DOJ will scrutinize Washington’s implementation of I-502 to make certain it reinforces federal law enforcement priorities. 

For example, a business selling recreational marijuana that complies with state laws nevertheless could trigger federal wrath if it were involved in selling pot to Oregon distributors from someone connected to the supply of marijuana from illegal sources, including gangs or cartels.  Moreover, the fact remains that marijuana will remain classified as illegal for recreational use by the federal government.  Although the new policy is certainly friendly toward I-502 and Washington’s thoughtful implementation of a working pot market, a new administration could revoke the policy and choose to enforce federal law.  At the end of the day, the policy removes some uncertainty for the time being.  It may be a first step toward legalization under federal law, but it is by no means a permanent green light for Washington marijuana businesses.

WSLCB Holds Work Session on I-502 Draft Rules and Comments

About a month ago, the Washington State Liquor Control Board (WSLCB) issued initial draft rules implementing Initiative 502 (I-502)(PDF), Washington state’s recently enacted marijuana reform law. You can read more about those draft rules here in one of our previous blog posts on the subject.

Since mid-May, WSLCB has been accepting public comment regarding the draft rules. In doing so, the Board sought to first vet the rules with stakeholders allowing it to adapt and refine the draft rules based on the input received. The Board recently concluded its public input period on the initial draft rules on June 10, 2013.

Today at the WSLCB Headquarters, the Board is conducting a work session during which WSLCB staff will summarize and present the public comments received regarding the I-502 initial draft rules to the Board. The work session is scheduled to take place at 1:30PM this afternoon.

For those interested in tuning in, TVW, the Washington State Public Affairs Network, is tentatively scheduled to live stream the work session on its website at www.tvw.org. It is also scheduled to be filmed for TV to be aired at a later date. In addition, audio of the work session will be posted to both the agency website and YouTube channel as soon as possible.

Seminar on I-502 Impacts on Washington State Business and Real Estate Transactions

Stoel Rives attorneys Susan Johnson and Jim Shore will be part of the faculty for a one-day Law Seminars International conference on June 11 regarding Washington's Initiative 502 that legalized the recreational use of marijuana. Susan will serve as co-chair of the conference, while Jim will present on I502 implications for employer policies and procedures.

The seminar will examine the challenging legal, regulatory and business issues arising from the creation of Washington's new commercial cannabis industry. Panelists will discuss the Washington State Liquor Control Board's efforts to develop a "first in the Nation" regulatory scheme for the commercial cannabis marketplace, the effect those regulations may have on prospective business interests (including land use, commercial real estate, and employment law issues), the state and federal dichotomy regarding the legalization of marijuana, and other legal challenges that may result from the passage of Washington's I-502.

The seminar will conclude with an engaging discussion of ethical issues facing attorneys who provide advice to clients despite the clear conflict of state and federal laws.

For more information, visit http://www.lawseminars.com/detail.php?SeminarCode=13POTREWA.

Marijuana Experts Host Live Chat to Discuss New I-502 Rules

With the initial draft rules implementing Initiative 502 (I-502) (PDF) issued just last week and still fresh on the public’s mind, Seattle Times reporter Bob Young and three I-502 experts held a live chat today to answer specific questions about the new rules. State Liquor Control Board Deputy Director Rick Garza, ACLU of Washington drug-policy director Alison Holcomb, and dispensary owner John Davis joined Bob Young, a reporter on marijuana and I-502 issues, to offer their views on how the marijuana legalization regulations are shaping up.

Questions ranged from how the State intends to address enforcement issues to whether the Federal government will be issuing a position statement in the near future to how licensed marijuana retailers will compete with an existing black market for the sale of marijuana to the producer licensing process. You can read the full transcript from the live chat HERE.

Washington Liquor Control Board Releases Draft I-502 Rules: what you need to know

Marijuana logo required under WA Initiative 502 draft rulesWatch for our I-502 draft rules cheat sheet, coming soon!

The wait is officially over, folks. Yesterday, the Washington State Liquor Control Board (WSLCB) met its projected mid-May deadline to issue initial draft rules implementing Initiative 502 (I-502) (PDF), Washington state’s recently enacted marijuana reform law. The 46-page proposed addition to the Washington Administrative Code gives the public a glimpse into how the WSLCB will potentially regulate such areas as from marijuana product testing, growing licenses, advertising, and package labeling.

For instance, the Board is proposing a number of security requirements on licensed marijuana growers, processors, and retailers. According to the draft rules, (1) marijuana production must take place within a fully enclosed secure indoor facility or greenhouse with rigid walls, a roof, and doors, (2) all employees in any licensed premises must display an identification badge at all times while in a licenses premises, (3) each licensed premises must have a security alarm system on all perimeter entry points and perimeter windows, (4) the licensed premises must have a complete video surveillance and recording system for control areas, and (5) all marijuana licensees must have a traceability mechanism to track the marijuana from seed to sale. 

In addition to security and public safety requirements, all marijuana licensees will be responsible for keeping records that clearly and accurately reflect the financial condition of the business and the business’s operations. Specifically, the following records must be kept and maintained on the licensed premises for a three year period and must be made available for inspection if requested by an employee of the liquor control board: purchase invoices, bank statements, accounting and tax records, records of all financial transactions related to the licensed business, employee records, records of each daily application of fertilizers, pesticides, herbicides or any other chemicals, batch records, inventory records, and quality test results.

Some other highlights from the initial draft rules are as follows:

  • RETAIL SALES – Similar to liquor sales, marijuana retailer licensee will be permitted to sell useable marijuana, marijuana-infused products, and marijuana paraphernalia 20 hours a day, 7 days a week between the hours of 6AM and 2AM. A single retail transaction is limited to 1 ounce of useable marijuana, 16 ounces of marijuana-infused product in solid form, and 72 ounces of marijuana-infused product in liquid form for persons 21 and older.
  • LABELING – Labels affixed to the container or package containing marijuana-infused products sold at retail must include information similar to that seen on processed food product labels: the name of the business and the UBI number for all licensees, lot and batch numbers, manufactured date, best by date, serving size including total milligrams of active THC, net weight, ingredients list any allergens, the Washington State icon logo, and several cautionary statements such as, “May be habit forming” and “this product unlawful outside of Washington State.”
  • PRODUCT WARNINGS – Both useable marijuana and marijuana-infused products will be required to be sold by the retailer with certain accompanying materials that contain several warning statements to the consumer such as “There may be health risks associated with consumption of this product;” “For use only by adults 21 and older. Keep out of reach of children;” “Products containing marijuana can impair concentration, coordination, and judgment. Do not operate a vehicle or machinery under the influence of this drug;” etc.
  • ADVERTISING – The Board intends to limit each retail licensed premises advertising to one sign no larger than sixteen hundred square feet identifying the retail outlet by the licensee’s business name or trade name that is visible to the general public.
  • QUALITY ASSURANCE TESTING – Marijuana licensees are required to conduct quality assurance testing for any usable marijuana or other marijuana product, which testing must be performed by an accredited third party testing lab.
  •  WASTE DISPOSAL – Marijuana solid and liquid waste must be stored, secured and managed in accordance with the applicable state and local statutes and regulations and disposed of in compliance with the Washington Departments of Ecology and Health and local codes and ordinances.

It is important to note, that these rules are still in the very early stages of development. In an interview with the Seattle Times, Alison Holcomb, primary author of I-502 and the drug-policy director for the ACLU of Washington, noted that many rules seem to beg further clarification. The article in this morning’s issue of the paper quoted Holcomb as stating, “This is literally just a preview of where they are right now. And they’re intentionally doing this to give the public an opportunity to provide meaningful input.”

By releasing these initial draft rules before filing the formal draft rules the WSLCB intends to solicit public comment before starting the official draft rule process in mid-June. Vetting the rules with stakeholders will allow the Board to adapt and refine the draft rules based on the input received. Stakeholders are encouraged to review the draft rules and send comments and suggestions to rules@liq.wa.gov or the following mailing address no later than June 10, 2013:

Rules Coordinator
Liquor Control Board
P.O. Box 43080
Olympia, WA 98504-3080

The complete draft rules are available for download on the WSLCB’s website here: http://www.stoel.com/files/Initial-Draft-Rules-05-16-13.pdf (PDF). Stoel Rives attorneys will be further analyzing the draft rules in the coming weeks. As always, continue to check this space for more on I-502 implementation progress. 

I-502 Draft Rules Expected Next Week

It looks like the Washington State Liquor Control Board (WSLCB) is on track to meet the first of several milestones in the implementation of Initiative 502 (I-502), Washington State’s recently passed marijuana reform law. According to a tweet earlier today from I-502 Implementation (@I502implement), we can expect to see the first draft of I-502 implementing regulations next week.

The draft rules will first be sent to stakeholders for comment in mid-May. Later in mid-June, WSLCB will then file a Proposed Rule-Making Order (CR-102) which is the notice used to publish the text of the proposed rule and also informs the public that they may participate in the rule-making process. Should the draft rules need substantial changes after submitting for comment, the WSLCB is required by law to resubmit the CR 102.

Resubmitting the CR 102 could move the license issuance date to late December 2013. According to WSLCB’s current timeline, the Board intends to begin issuing Producer, Processor and Retail licenses to qualified applicants by December 1, 2013. So far, the agency appears to be on track to meet that deadline.

Check back here next week for further updates on WSLCB’s I-502 draft rules and implementation progress.

Video Interview: Discussing What I-502's Rollout May Look Like for Businesses with LXBN TV

Following up on our posts on Washington Initiative 502, my colleague Claire Mitchell had the chance to speak with Colin O'Keefe of LXBN regarding the initiative and its implementation for businesses. In the brief interview, Claire explained the rulemaking by the Washington State Liquor Control Board currently underway and offered thoughts on what Washington's marijuana industry may look like. 

Washington State Liquor Control Board Announces Timeline for Implementing I-502

The Washington State Liquor Control Board (WSLCB) announced its tentative timeline for implementation of Initiative 502 (I-502) yesterday. WSLCB developed this timeline in order to keep the public informed and to identify significant milestones in the implementation process.

Rulemaking began in early December with the filing of CR101 for the Producer License, a notice of proposed rulemaking. WSLCB is still accepting public comments to this notice until February 10, 2013.

According to the timeline, beginning in late January, the WSLCB will begin holding forums in regions around Washington to allow public comment on aspects of the law, which will be followed by public hearings on the draft rules.

WSLCB expects to begin issuing Producer licenses to qualified applicants sometime in mid-August. Processor and Retailer licenses will likely be issued sometime in November. For the complete I-502 timeline, visit the I-502 implementation page of the WSLCB website at www.liq.wa.gov.

A Cautionary Tale in the Conflict Between Federal and State Law Over Marijuana Legalization

As we pointed out in our post “Understanding the Conflict Between Federal Law and Washington Initiative 502,” possession and sale of marijuana remains illegal under federal law even as states push to legalize marijuana for medical or recreational use. We quoted Jenny Durkan, the U.S. Attorney for the Western District of Washington, as stating that the U.S. Department of Justice’s (“DOJ”) “responsibility to enforce the Controlled Substances Act remains unchanged” in the face of state initiatives like Washington Initiative 502, that legalized the possession of certain amounts of marijuana. 

Adam Nagourny of the New York Times reported today on the sobering case of Matthew R. Davies, who was indicted last July on federal charges of cultivating marijuana, following a DOJ raid on two dispensaries and a warehouse filled with nearly 2,000 marijuana plants that Davies owned and operated. Davies reportedly saw a big business opportunity after California legalized the use of marijuana for medical purposes. “We thought, this is an industry in its infancy, it’s a heavy cash business, it’s basically being used by people who use it to cloak illegal activity,” Nagourny quotes Davies as saying. “Nobody was doing it the right way. We thought we could make a model of how this should be done.”

Elliot Peters, the lawyer for Mr. Davies, said his client fully complied with California law permitting medical marijuana use. “This is not a case of an illicit drug ring under the guise of medical marijuana,” Mr. Peters wrote. “Here, marijuana was provided to qualified adult patients with a medical recommendation from a licensed physician. Records were kept, proceeds were tracked, payroll and sales taxes were duly paid.” 

The prosecuting attorney in the case, U.S. Attorney for the Eastern District of California Benjamin B. Wagner, remains unbowed. “Mr. Davies was not a seriously ill user of marijuana nor was he a medical caregiver — he was the major player in a very significant commercial operation that sought to make large profits from the cultivation and sale of marijuana,” Wagner wrote in a letter addressed to Mr. Davies’ lawyers. Wagner added that prosecuting people like Davies “remains a core priority of the [DOJ].” 

Read Nagourny’s full report (subscription required).

Part II: Understanding the Conflict Between Federal Law and Washington Initiative 502

In Part I of our “Understanding Washington Initiative 502” (“I-502”) series, we described how I-502’s licensing regime is scheduled to go into effect late next year. There is no question that I-502 legalizes possession of certain amounts of marijuana under Washington law, and the state licensing structure aimed at regulating the production, distribution, and retail sale of marijuana reflects this fact. But as a Schedule I drug subject to the federal Controlled Substances Act (“Act”), possession and sale of marijuana remains illegal under federal law. I-502 does not change this basic fact, regardless of whether the Washington State Liquor Control Board succeeds in establishing the rigorous regulatory regime envisioned by I-502. 

I-502 intends to establish a well-regulated market that will allow Washington state to tax a commodity that had been pushed into the underground economy. Achieving that goal depends on capital investments in the regulated marijuana market in Washington State. But will investors be willing to fund a marijuana start-up if federal law diverges significantly from state law – particularly when federal law includes criminal sanctions? That will depend on the federal government’s response to states like Washington and Colorado that have chosen to de-criminalize marijuana.

The federal government has not yet explained how it plans to react to I-502. Jenny Durkan, the U.S. Attorney for the Western District of Washington (the most senior federal law enforcement official in the federal district encompassing Seattle) issued a statement on December 5, 2012, noting that the U.S. Department of Justice (“DOJ”) “is reviewing the legalization initiatives recently passed in Colorado and Washington State” and that the DOJ’s “responsibility to enforce the Controlled Substances Act remains unchanged.” She warned that regardless of I-502, “growing, selling or possessing any amount of marijuana remains illegal under federal law.” The New York Times reported on December 6 that the Obama Administration “has been holding high-level meetings since the election to debate the response of federal law enforcement agencies to the decriminalization efforts.” Although some officials are pushing for a harsh response, such a reaction might come with a hefty political price.

The Administration’s response starts with a political decision. Should it enforce federal law on this issue or not? If it decides to suspend enforcement of federal law, Washington state law will govern the issue – at least until the Administration changes its policy or the Administration itself is changed.

If it decides to enforce federal law, what are its options? Federal prosecutors cannot enforce every act that constitutes a federal crime; there simply is not enough time or money to do so. Historically, the federal government has relied on cooperation from state and local law enforcement to prosecute smaller marijuana cases under state law. After I-502, that option no longer exists in Washington State. Instead, as Charlie Savage of The New York Times points out, the federal government has a number of options to choose from as it balances the federal interest in enforcing the Congressionally enacted Controlled Substances Act against the political reality that Washington voters approved I-502 by a significant majority. These options assume that the federal government’s goal is to obtain a federal court ruling that federal law trumps I-502 or, at a minimum, to overturn the initiative.

First, federal prosecutors could adopt a non-confrontational strategy focused on assuming the role played by local law enforcement prior to I-502’s enactment. Federal prosecutors would file charges against relatively insignificant marijuana users and wait for the criminal defendant to assert his or her right to possess and/or purchase marijuana under I-502. The federal authorities would then seek to obtain a court order ruling that federal law governs the issue regardless of contrary state law. 

Second, the DOJ could proactively seek declaratory and injunctive relief from a federal judge, asking for a ruling that clearly states that I-502 is preempted by federal law and a judicial order preventing the State of Washington from establishing its regulatory and tax program.

Third, the federal government could threaten to withhold federal grants to Washington State unless the state legislature overturned I-502. This tactic could be used in conjunction with the first two options.

The ball is in the Administration’s court, but it is unclear exactly what the White House plans to do. I-502 authorizes a significant new market under Washington law—much larger than the existing Washington State medical marijuana market. A state fiscal analysis estimates that 363,000 consumers will use 85 metric tons of marijuana per year. The sale of those goods could generate as much as $560 million each year in taxes for the State of Washington. It is hard to imagine that the federal government will allow such a market to flourish when participation in the market plainly violates federal law. 

In a sense, however, preemption is almost a side issue. The federal government always has the power to prosecute federal violations, regardless of Washington state law. And this threat could introduce enough uncertainty into the market so that significant investment is deterred and the market never comes to fruition. Whatever the Administration’s decision, one thing is certain. Now that I-502 is the law in Washington State, its legal challenges have only begun. The attorneys at Stoel Rives are monitoring this issue and will update this blog as the facts develop.